Aurinia Pharmaceuticals Inc

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

Aurinia Pharmaceuticals Inc. (Aurinia or the Company) is a fully integrated biopharmaceutical company focused on delivering therapies to people living with autoimmune diseases with high unmet medical needs. In January 2021, the Company introduced LUPKYNIS® (voclosporin), the first U.S. Food and Drug Administration (FDA) approved oral therapy for the treatment of adult patients with active lupus nephritis (LN) and continues to conduct clinical and regulatory activities to support the LUPKYNIS development program. Aurinia contracted with Otsuka Pharmaceutical Co., Ltd. (Otsuka) as a collaboration partner for development and commercialization of LUPKYNIS in the European Union (EU), Japan, as well as the United Kingdom, Russia, Switzerland, Norway, Belarus, Iceland, Liechtenstein and Ukraine (collectively, the Otsuka Territories).

On February 15, 2024, the Company announced the conclusion of its previously announced strategic review process and actions designed to enhance shareholder value. Aurinia executed a corporate restructuring in the first quarter that reduced employee headcount by approximately 25% and discontinued its AUR300 research and development program. For further discussion, refer to Note 19, Restructuring.

On November 7, 2024, Aurinia announced it was implementing a strategic restructuring to sharpen the Company's focus on continued LUPKYNIS® growth and the rapid development of AUR200. This restructuring will result in a workforce reduction of approximately 45% and Aurinia anticipates a one-time restructuring charge in the fourth quarter of 2024 of approximately $15 to $19 million and will focus the Company’s LUPKYNIS commercial strategy on the highest growth drivers.

The Company is also developing its pipeline asset AUR200, a differentiated, potential next generation therapy for autoimmune diseases that targets both BAFF (B-cell Activating Factor) and APRIL (A Proliferation-Inducing Ligand). On September 5, 2024, the Company announced the first participant has been dosed in a Phase 1 single ascending dose (SAD) study of AUR200. The SAD study will assess the safety, tolerability, pharmacokinetics, and changes in biomarkers for AUR200 in healthy volunteers, with data expected in the first half of 2025.

Aurinia's head office and registered office is located at #140, 14315-118 Avenue, Edmonton, Alberta, Canada T5L 4S6. Aurinia also has a United States commercial office located at 77 Upper Rock Circle Suite 700, Rockville, Maryland, 20850.

Aurinia is incorporated pursuant to the Business Corporations Act (Alberta). The Company’s common shares are traded on the Nasdaq Global Market (Nasdaq) under the symbol AUPH.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments considered necessary for fair presentation in accordance with U.S. GAAP. The condensed consolidated balance sheet as of September 30, 2024 was derived from audited annual consolidated financial statements but does not include all annual disclosures required by U.S. GAAP. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the full year or any other future periods.

These unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Aurinia Pharma U.S., Inc. (Delaware incorporated) and Aurinia Pharma Limited (UK incorporated). All intercompany balances and transactions have been eliminated in consolidation and operate inone segment.

These unaudited condensed consolidated financial statements are presented in U.S. dollars, which is the Company's and all of its foreign subsidiaries' functional currency. Therefore, there is no currency translation adjustment upon consolidation as the remeasurement of gains or losses are recorded in the condensed consolidated statements of operations. All monetary assets and liabilities denominated in a foreign currency are remeasured into U.S. dollars at the exchange rate on the balance sheet date. Non-monetary assets and liabilities (along with their related expenses) are translated at the rate of exchange in effect on the date the assets were acquired. Monetary income and expense items are translated at the average foreign currency rate. Foreign exchange gains and losses arising on translation or settlement of a foreign currency denominated monetary item are included in the consolidated statements of operations and recorded in other expense (income), net.

Significant Accounting Policies

The Company's significant accounting policies have not changed from those previously described in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, other than as stated below.

Product Revenues

We sell LUPKYNIS (voclosporin) primarily to specialty pharmacies and a specialty distributor, and semi-finished product directly to our ex-U.S. partner Otsuka. These customers subsequently distribute the Company's products. Revenues from product sales are recognized when the customer obtains control of the Company's product, which occurs upon delivery to the customer.

Reserves for discounts and allowances: Product sales are recorded at the net sales price, which includes estimates of variable consideration for which reserves are established. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a liability (if the amount is payable to a party other than the customer).

The Company's estimates of reserves established for variable consideration are calculated based upon utilizing the expected value method. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Amounts related to such items are estimated at contract inception and updated at the end of each reporting period as additional information becomes available.

Significant judgment is required in estimating variable consideration. In making these estimates, the Company considers historical data, including patient mix and inventory sold to customers that has not yet been dispensed to patients. The Company uses a data aggregator and historical claims to estimate variable consideration for inventory sold to its specialty pharmacies that has not yet been dispensed. Actual amounts may ultimately differ from the Company's estimates. If actual results vary, the Company adjusts these estimates, which could have an effect on earnings in the period of adjustment. As of September 30, 2024, the Company did not have any material adjustments to variable consideration estimates based on actual results. These specific adjustments are detailed further in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

Major Customers: The Company currently hastwo main specialty pharmacies for U.S. commercial sales of LUPKYNIS and a collaboration partnership with Otsuka for sales of semi-finished product and royalty, collaboration, and manufacturing services revenue in the Otsuka Territories. Revenues from our two main customers represented approximately 49% and 38% of revenues for the nine months ended September 30, 2024. Revenues from our two main customers represented approximately 50% and 39% of revenues for the nine months ended September 30, 2023.

In late March 2022, the Company provided a nominal additional discount to both of its two main U.S. specialty pharmacies, applicable for the 2022 calendar year, in connection with holding additional amounts of LUPKYNIS on hand for risk mitigation and supply chain concerns. In December 2022, the Company extended the nominal discount to the end of 2024. Such discounts, or any future discounts, may result in reduced sales to these customers in subsequent periods and substantial fluctuations in revenues from period to period. The Company monitors economic conditions, the creditworthiness of customers and government regulations and funding, both domestically and abroad. The Company regularly communicates with its customers regarding the status of receivable balances. Global economic conditions and customer specific factors may require the Company to periodically reevaluate the collectability of its receivables and based on this evaluation the Company could potentially incur credit losses. The Company has had no historical write-offs related to customers or receivables.

Accounts Receivable, net: Accounts receivable are stated at their net realizable value. The Company's accounts receivable primarily represent amounts due to the Company from product sales and from its Otsuka collaboration agreement (Note 12). As of September 30, 2024, and December 31, 2023, accounts receivable, net are $36.5 million and $24.1 million, respectively. The Company's standard credit terms range from 30 to 45 days. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between the transfer of the promised good to the customer and receipt of payment will be one year or less. The Company estimates the allowances using the current expected credit loss, or CECL, model. Under the CECL model, the allowances reflect the net amount expected to be collected from the accounts receivable. Aurinia evaluates the collectability of these cash flows based on the asset’s amortized cost, the risk of loss even when that risk is remote, losses over an asset’s contractual life, and other relevant information available to the Company. Accounts receivable balances are written off against the allowance when it is probable that the receivable will not be collected. Given the nature of the Company's accounts receivable, it determined that an allowance for current expected credit losses wasnil as of September 30, 2024, and December 31, 2023.

Share-Based Compensation: The Company follows ASC Topic 718, Compensation - Stock Compensation, which requires the measurement and recognition of compensation expense, based on estimated fair values, for all share-based awards made to employees and directors. The Company records compensation expense based on the fair value on the grant date using the graded accelerated vesting method for all share-based payments related to stock options, performance awards (PAs), restricted stock units (RSUs) and purchases under the Company's 2021 Employee Share Purchase Plan (ESPP). The estimated fair value of performance-based awards is measured on the grant date and is recognized when it is determined that it is probable that the performance condition will be achieved. The Company has elected a policy for all share-based awards to estimate forfeitures based on historical forfeiture experience at the time of grant and revise in subsequent periods if actual forfeitures differ from those estimates.

Restructuring Expenses: Restructuring expenses consist primarily of employee severance, contract termination costs and other costs. Liabilities for costs associated with a restructuring activity are recognized when the liability is incurred and are measured at fair value. According to ASC 420, Exit or Disposal Cost Obligations, one-time employee severance and termination benefits are expensed at the date the entity notifies the employee of the plan, unless the employee must provide future service, in which case the benefits are expensed in the period when the service ends. One-time termination benefits include severance, continuation of health insurance coverage for certain employees, and other benefits such as outplacement support services for a specified period of time.

Common Shares: The Company’s shares have no par value or stated value and therefore, upon issuance or repurchase of shares, all amounts related to the shares are recorded under common shares on the balance sheet. The value of common shares includes cash amounts paid or received for the shares and the fair value of equity awards and warrants. Amounts for common shares are offset by share issue costs or transactions costs associated with repurchases or equity offerings.

Recent Accounting Pronouncements

In December 2023, the FASB issued final guidance in ASU No. 2023-09, Income Taxes (ASC 740): Improvements to Income Tax Disclosures requiring entities to provide additional information in the rate reconciliation and disclosures about income taxes paid. For public business entities, the guidance is effective for annual periods beginning after December 15, 2024. The Company is not early adopting, and therefore, this ASU is not adopted in the current period. The Company is currently assessing the potential impact this ASU may have on the consolidated financial statements.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures which requires public entities to disclose significant segment expenses regularly provided to the chief operating decision-maker. Public entities with a single reporting segment have to provide all disclosures required by ASC 280, including the significant segment expense disclosures. For public business entities, the guidance is effective for annual periods beginning after December 15, 2023. This ASU does not have a material impact on the consolidated financial statements.

3. Fair Value Measurements

The Company's financial instruments consist primarily of cash, cash equivalents, restricted cash, investments, accounts receivable, accounts payable, and accrued liabilities. The carrying value of accounts receivable, accounts payable, and accrued liabilities approximate their fair value because of their short-term nature. Estimated fair value of available-for-sale debt securities are generally based on prices obtained from commercial pricing services.

In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company’s assumptions about how market participants would price assets and liabilities). As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

•Level 1 - Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

•Level 2 - Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

•Level 3 - Unobservable inputs that reflect the reporting entity’s own assumptions.

The following table summarizes the financial assets (cash, cash equivalents, restricted cash, and investments) measured at fair value on a recurring basis:

The Company's Level 1 instruments include cash, cash equivalents, and restricted cash that are valued using quoted market prices. Aurinia estimates the fair values of investments in corporate debt securities, government and government related securities and certificates of deposits by taking into consideration valuations obtained from third-party pricing services. The fair value of the Company's investments classified within Level 2 is based upon observable inputs that may include benchmark yield curves, reported trades, issuer spreads, benchmark securities and reference data including market research publications. At September 30, 2024 and December 31, 2023, the weighted average remaining contractual maturities of Aurinia's Level 2 investments were approximately 7 months for both periods. The Company's policy is for these investments to have an overall rating of A-1, or higher, by Standard & Poor's, or an equivalent rating by Moody’s or Fitch.

No credit loss allowance was recorded as of September 30, 2024 and December 31, 2023, as the Company does not believe the unrealized loss is a result of a credit loss due to the nature of the investments. Aurinia also considered the current and expected future economic and market conditions and determined that the estimate of credit losses was not significantly impacted.

Refer to Note 4, Cash, Cash Equivalents, Restricted Cash, and Investments, for the carrying amount and related unrealized gains (losses) by type of investment.

4. Cash, Cash Equivalents, Restricted Cash, and Investments

As of September 30, 2024, and December 31, 2023, the Company had $348.7 million and $350.7 million, respectively of cash, cash equivalents, restricted cash, and investments summarized below. As of September 30, 2024, and December 31, 2023, $311.6 million and $301.8 million were available-for-sale debt securities which are carried at fair market value.

As of September 30, 2024, and December 31, 2023, accrued interest receivable from investments was $0.5 million and $0.7 million, respectively. During the three and nine months ended September 30, 2024, the Company had $0.5 million and $0.3 million of unrealized gains on available-for-sale securities, net of tax, respectively, which are included as a component of comprehensive income (loss) on the consolidated statements of operations. During the three and nine months ended September 30, 2023, the Company had $0.1 million and $0.1 million of unrealized gains on available-for-sale securities, net of tax, respectively, which are included as a component of comprehensive income (loss) on the consolidated statements of operations. Currently, the Company does not intend to sell investments that are in an unrealized loss position, and it is unlikely the Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity. The Company has determined that the gross unrealized gains on investments at September 30, 2024, were temporary in nature. Realized gains or losses were immaterial during the three and nine months ended September 30, 2024, and 2023.

The Company's short-term investments as of September 30, 2024 mature at various dates through August 2025.

5. Inventories, net

Inventories are valued under a standard costing methodology on a first-in, first-out basis and are stated at the lower of cost or net realizable value. The Company capitalizes inventory costs related to products to be sold in the ordinary course of business. The Company makes a determination of capitalizing inventory costs for a product based on, among other factors, status of regulatory approval, information regarding safety, efficacy and expectations relating to commercial sales and recoverability of costs. Capitalized costs of inventories for LUPKYNIS (voclosporin) mainly include third party manufacturing costs, transportation, storage, insurance, and allocated internal labor. Due to the nature of the Company's supply chain process, inventory that is owned by the Company, is physically stored at third-party warehouses, logistics providers, and contract manufacturers.

The Company assesses recoverability of inventory each reporting period to determine if any write-down to net realizable value is necessary. As of September 30, 2024, and December 31, 2023, Aurinia recorded reserves of finished goods inventories ofnil and $0.8 million, respectively, which were primarily related to potential inventory obsolescence.

The components of inventory, net are as follows:

6. Prepaid Expenses and Deposits

Prepaid expenses are as follows:

7. Intangible Assets

The following table summarizes the carrying amount of intangible assets, net of accumulated amortization.

Amortization expense for the three months ended September 30, 2024, and 2023, was approximately $0.2 million and $0.5 million, respectively. Amortization for the nine months ended September 30, 2024, and 2023, was approximately $0.7 million and $1.4 million, respectively.

8. Property and Equipment, net

Property and equipment, net are as follows:

9. Lease Obligations

The Company has the following lease obligations:

Rockville, Maryland

During March 2020, the Company entered into a lease for its U.S. commercial office in Rockville, Maryland for a total of 30,531 square feet of office space. The lease has a remaining term of approximately seven years and has an option to extend fortwo five-year periods after the initial term of 11 years has elapsed and has an option to terminate after seven years. As of September 30, 2024, the Company had a right-of-use (ROU) asset of $4.1 million and lease liability of $6.8 million included in the condensed consolidated balance sheets. As of December 31, 2023, the Company had a right-of-use asset of $4.5 million and lease liability of $7.4 million included in the condensed consolidated balance sheets. The Company recorded leasehold improvement incentives in the amount of $2.3 million as additions to the lease liability.

When measuring the lease liability, the Company discounted lease payments using its incremental borrowing rate at the lease commencement date on March 12, 2020. The incremental borrowing rate applied to the lease liability was 5.2% based on the financial position of the Company, geographical region and term of lease.

Edmonton, Alberta

During October 2022, the Company entered into a long term lease in Edmonton for a total of 4,375 square feet of office space. The lease is asix year lease and has an option to renew after five years at prevailing market rates. The lease commenced on November 1, 2022 and the Company recorded the lease as an operating lease. The lease is not material to the Company's financial position.

For all leases, the Company incurs variable lease costs. These costs include operation and maintenance costs included in SG&A and are expensed as incurred. The variable lease costs are not material to the Company's financial position.

The operating lease costs for all leases for the three and nine months ended September 30, 2024, and September 30, 2023, were $0.2 million and $0.6 million, respectively.

Monoplant

At lease inception, the Company recorded an ROU asset of approximately $117.6 million and a corresponding lease liability of $94.1 million, which is the present value of the minimum lease payments beginning July 2023 and expiring in 2030. The incremental borrowing rate applied to value the lease liability at inception is 6.19%, which was based on the financial position of the Company, geographical region and term of lease. As the monoplant finance lease is denominated in Swiss francs, the company incurs unrealized and realized foreign exchange gains and losses each reporting period related to the valuation of the lease liability and timing of lease payments.

As of September 30, 2024, the ROU asset, net and corresponding lease liability balance were $95.6 million and $80.7 million, respectively. As of December 31, 2023, the ROU asset, net and corresponding lease liability balance were $108.7 million and $90.1 million, respectively. For the three and nine months ended September 30, 2024, ROU amortization was $4.4 million and $13.1 million, respectively. For the three and nine months ended September 30, 2024, interest expense was $1.2 million and $3.7 million, respectively.

Beinheim

The Company entered into an equipment and facility finance lease for a backup manufacturing encapsulation site in Beinheim, France that commenced operations during June 2024 with a lease term ofseven years. The incremental borrowing rate applied to value the lease liability at inception is 6.19%, which was based on the financial position of the Company, geographical region and term of lease.

As of September 30, 2024, the ROU asset, net and corresponding lease liability balance were $0.8 million and $0.1 million, respectively.

The following table represents the weighted-average remaining lease terms and discount rates as of September 30, 2024:

Supplemental cash flow information related to leases are as follows:

Future maturities of lease liabilities as of September 30, 2024 are as follows:

10. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities are as follows:

11. Deferred Compensation and Other Non-current Liabilities

The Company recorded other non-current liabilities of $10.8 million and $10.9 million as of September 30, 2024, and December 31, 2023, respectively. The balance for both periods primarily included deferred compensation arrangements whereby certain former executive officers as of March 8, 2012 were provided with future potential employee benefit obligations for remaining with the Company for a certain period of time. These obligations were also contingent on the occurrence of uncertain future events. One of the former officers, Dr. Robert T. Foster, is considered a related party following his appointment to the Board of Directors (the Board) on September 21, 2023. For further discussion, refer to Note 17, Related Party Transactions.

12. License and Collaboration Agreements

Otsuka Contract

On December 17, 2020, the Company entered into a collaboration and license agreement with Otsuka for the development and commercialization of oral LUPKYNIS in the Otsuka Territories. For full description of the agreements the Company has entered into with Otsuka, please refer to the Annual Report on Form 10-K for the year ended December 31, 2023.

As part of the agreement, the Company received an upfront cash payment of $50.0 million in 2020 for the license agreement and has received $50.0 million in regulatory and pricing approval related milestones. The Company provides semi-finished product of LUPKYNIS to Otsuka on a cost-plus basis, sharing capacity of the monoplant and receives tiered royalties ranging from 10 to 20 percent (dependent on territory and achievement of sale thresholds) on net product sales by Otsuka, along with additional milestone payments based on the attainment of certain annual sales. In addition, certain collaboration services are to be provided to Otsuka on agreed upon rates.

On September 24, 2024, the Company announced that the Japanese Ministry of Health, Labour, and Welfare has approved LUPKYNIS, a second-generation calcineurin inhibitor, in combination with mycophenolate mofetil (MMF) to treat LN. As part of the December 2020 agreement with Otsuka, the Company is eligible to receive a payment of $10.0 million U.S. dollars upon approval in Japan along with low double-digit royalties on net sales once launched. As a result, the $10.0 million milestone was recognized as collaboration revenue in the quarter.

For the three and nine months ended September 30, 2024, the Company recognized $12.3 million and $16.7 million, respectively of license, collaboration, and royalty revenue from services provided under the Otsuka agreement. For the three and nine months ended September 30, 2023, the Company recognized $12.7 million and $13.2 million, respectively.

13. Shareholder's Equity

On February 15, 2024, Aurinia announced that the Board had approved a share repurchase program of up to$150 million common shares of the Company, affirming its confidence in the Company's growth prospects.

On February 29, 2024, Canadian securities regulators granted exemptive relief for the Company’s share repurchase program, authorizing the Company to purchase up to 15 percent of its issued and outstanding shares in any 12-month period for up to 36 months, including under the current program. This program may be implemented through open market or privately negotiated purchases, including under a plan intended to comply with the affirmative defense under Rule 10b5-1, Rule 10b-18 or an automatic securities purchase plan, an accelerated share repurchase program, or other mechanisms. The timing and amount of repurchase transactions will be determined by management based on its evaluation of market conditions, share price, legal requirements, including applicable blackout period restrictions, and other factors. The purchase price of any Common Shares will be determined in accordance with applicable U.S. securities laws.

As of September 30, 2024, the Company had repurchased approximately 3.4 million of Aurinia's common shares for $18.6 million (including transaction costs, which consist of commissions and excise tax). The cost of repurchased shares are reported as a reduction in common shares and under Alberta law, the shares were cancelled and not reissued.

14. Net Income (Loss) per Common Share

Basic and diluted net loss per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. For the periods in a loss position, diluted net loss per share is the same as basic net loss per share. The treasury stock method is used to determine the dilutive effect of the Company's stock options, RSUs, performance awards and ESPP. The numerator and denominator used in the calculation of basic and diluted net loss per common share are as follows:

The Company did not include certain shares issuable under share-based compensation plans because the effect would have been antidilutive. The number of common shares excluded was insignificant for all periods presented.

15. Share-based Compensation

The Company's Amended and Restated Equity Incentive Plan (the Plan), which was adopted and approved by the Company's shareholders in June 2021, allows for an issuance of up to an aggregate of 23.8 million shares (inclusive of then outstanding awards) and provides for grants of stock options, performance awards (PAs), and restricted stock units (RSUs) that may be settled in cash and common shares. Also in June 2021, the Company's shareholders adopted and approved the Company's Employee Stock Purchase Plan (2021 ESPP), which allows for the issuance of up to 2.5 million shares. The 2021 ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code but also permits the Company to include the employees, including non-United States employees, in offerings not intended to qualify under Section 423. The purpose of the 2021 ESPP is to provide eligible employees with opportunities to purchase the Company’s common shares at a discounted price. As of September 30, 2024,0.9 million shares have been purchased under the ESPP.

In addition to stock options, PAs and RSUs granted under the Plan, the Company has granted certain stock options and RSUs as inducements material to new employees entering employment in accordance with Nasdaq Listing Rule 5635(c)(4). The inducements were granted outside of the Plan.

Stock Options

The Plan requires the exercise price of each option not to be less than the closing market price of the Company’s common shares on the business day immediately prior to the date of grant. The Board approves the vesting criteria and periods at its discretion. The options issued under the Plan are accounted for as equity-settled share-based payments.

The Company used the Black-Scholes option pricing model to estimate the fair value of the options granted. The assumptions used for the annual volatility and expected life of the options are reviewed and updated annually. The Company considers historical volatility of its common shares in estimating its future stock price volatility. The risk-free interest rate for the expected life of the options was based on the yield available on government benchmark bonds with an approximate equivalent remaining term at the time of the grant. The expected life is based upon the contractual term, taking into account expected employee exercise and expected post-vesting employment termination behavior.

The following weighted average assumptions were used to estimate the fair value of the options granted during the nine months ended September 30, 2024, and September 30, 2023:

The following table summarizes the option award activity for the nine months ended September 30, 2024:

Restricted Stock Units and Performance Awards

The Company has granted RSUs and PAs under the Plan, as well as inducements for certain new hires as discussed above. The RSUs and PAs are fair valued based on the previous business days' market price of common shares on the date of the grant.

The following table summarizes the RSU and PA activity for the nine months ended September 30, 2024:

Share-based Compensation Expense

The Company recognized share-based compensation expense for the three and nine months ended September 30, 2024, and September 30, 2023, as follows:

As of September 30, 2024, there was $25.7 million of unrecognized share-based compensation expense related to unvested awards granted which is expected to be recognized over a weighted-average period of approximately 1.3 years.

16. Income Taxes

The effective tax rates for the three and nine months ended September 30, 2024, and September 30, 2023, differed from the Canadian statutory rate applied to income or losses before income taxes primarily as a result of the mix of income, losses and valuation allowances.

The Company recognized an income tax expense of approximately $0.5 million and $2.0 million for the three and nine months ended September 30, 2024, respectively. The Company recognized an income tax expense of approximately $0.3 million and $0.1 million for the three and nine months ended September 30, 2023, respectively. The income tax expense recognized for these periods is a result of income in certain jurisdictions. This tax expense is not offset by a tax benefit as the Company has losses which are fully offset by a valuation allowance in its significant jurisdictions.

17. Related Party Transactions

On September 21, 2023, the Company appointed Dr. Robert T. Foster to the Board. Dr. Foster is considered a related party since he is one of the former executive officers of the Company who, as of March 8, 2012 was provided with future potential employee benefit obligations for remaining with the Company for a certain period of time. These obligations are contingent on the occurrence of uncertain future events. Dr. Foster was not a related party of the Company between his resignation from the Company in 2014, and his appointment to the Board on September 21, 2023. As of September 30, 2024, the Company had $0.8 million and $7.0 million of current and non-current liabilities related to Dr. Foster, respectively. As of December 31, 2023, the Company had $0.8 million and $7.6 million of current and non-current liabilities related to Dr. Foster, respectively. As of September 30, 2024, and December 31, 2023, the Company made payments of $0.4 million and $0.1 million, respectively for each period as a related party for the deferred compensation.

18. Commitments and Contingencies

The Company may, from time to time, be subject to claims and legal proceedings brought against it in the normal course of business. Such matters are subject to many uncertainties. Management believes the ultimate resolution of such contingencies will not have a material adverse effect on the consolidated financial position of the Company. Other than as described under Part II, Item I, the Company's material commitments and contingencies have not changed in any material manner from those previously described in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

Other Funding Commitments

In the normal course of business, the Company enters into agreements with contract research organizations, contract manufacturing organizations and other third parties for services to be provided to the Company. Generally, these agreements provide for termination upon notice, with specified amounts due upon termination based on the timing of termination and the terms of the agreement. The actual amounts and timing of payments under these agreements are uncertain and contingent upon the initiation and completion of services to be provided to the Company.

19. Restructuring

On February 15, 2024, the Company announced the conclusion of its strategic review process and actions designed to enhance shareholder value. Aurinia executed a corporate restructuring in the first quarter that reduced employee headcount by approximately 25%. The Company discontinued its AUR300 research and development program.

As of September 30, 2024, the restructuring expenses are included within operating expenses on the condensed consolidated statements of operations and comprehensive income (loss). For the three and nine months ended September 30, 2024, restructuring expenses werenil and $7.8 million, respectively. Restructuring expenses consisted of the following:

20. Subsequent Events

Effective November 7, 2024, Aurinia appointed Craig Johnson to the Board. Mr. Johnson has more than 30 years of experience serving in senior financial management roles and governing companies in the biotechnology industry.

The Company also announced that Dr. Robert T. Foster has retired from the Board effective November 5, 2024.